State regulators have begun using a new law, championed by a Northwest Indian legislator, to begin a crackdown on life insurance companies preying upon seniors.
Sen. Ed Charbonneau, R-Valparaiso, said House Bill 1379, which he helped pass this spring and went into effect July 1, prohibits the sale of STOLI (Stranger-Originated Life Insurance) policies.
His legislation makes illegal, starting this month, the practice of insurance salesmen convincing seniors to take out life insurance policies in their own names but naming a stranger, usually an investor, as a beneficiary.
Charbonneau said in such schemes, the beneficiary/investor gives the senior a one-time cash payment but can make a handsome profit when the senior dies. The sooner the senior dies, the larger the payoff for the investor.
"The practice of stranger-originated life insurance policies undermines the purpose of life insurance," Charbonneau said in a written statement after the law passed this spring.
Jim Atterholt, commissioner of the Indiana Department of Insurance that enforces the new law, said Wednesday, "It's a growing industry in Indiana...a product that preys upon seniors. It is one of those too-good-to-be true issues."
Atterholt said problems arise because many seniors talked into taking out such policies aren't told they owe taxes on their cash payments or that they may be denied future life insurance policies.
Atterholt said most large insurance firms don't offer STOLI, but those companies that do lobbied unsuccessfully against Charbonneau's bill.
"This legislation gives us additional tools to go after those folks who are selling this product," Atterholt said. "State Sen Charbonneau showed a lot of foresight in helping us nip this in the bud before Indiana became a problem state."
Atterholt said anyone aware of wishing to file a complaint about STOLI sales may call his office at 1-800-622-446.
"When we get reports of these through advertisements or direct mail, we can go after that company and go after them hard," Atterholt said.
